Please help me choose 401k Bond Fund!
Please help me choose 401k Bond Fund!
Hello all,
It's been a while since I've done a portfolio review, but I'm starting a new job and would like to pick my funds to at least get the ball rolling. I'm sure I'll come back with lots more questions when I look at the whole picture, but for now I'll just mimic what I had with my old 401k and contribute new money 60% to SP500 index (all set with that one in the new 401k) and 40% into bonds. International and other stuff is all in Roth.
So, I'm set with the SP500 index fund. But I need to choose a bond fund (or a mix of bond funds). Can anyone please make a recommendation? My old 401k had only 2-3 bond fund choices and one was an index so the choice was simple. Here, I have more options like high yield, inflation protected, intermediate term, etc. None appear to be index funds. New 401k is at Fidelity, which I'm also new to. Here are my options:
Inflation Protected - PIMCO REAL RETURN (ER 0.37)
Intermediate Term - PIMCO CORE PLUS BOND (ER 0.37)
High Yield - NB HIGH INC BOND R6 (ER 0.62) NRHIX
Stable Value - INCOME FUND (ER 0.37)
Emerging Markets - FID NEW MARKETS INC (ER 0.86) FNMIX
Is it good to split between inflation protected and intermediate in this case maybe? I really need to know the benefits and pitfalls of each one to make the best choice(s).
Thanks very much in advance for the advice.
EDIT: Edited to include the ticker symbols...at least the ones I could find. For some reason I can't seem to find the others on my available funds list...
It's been a while since I've done a portfolio review, but I'm starting a new job and would like to pick my funds to at least get the ball rolling. I'm sure I'll come back with lots more questions when I look at the whole picture, but for now I'll just mimic what I had with my old 401k and contribute new money 60% to SP500 index (all set with that one in the new 401k) and 40% into bonds. International and other stuff is all in Roth.
So, I'm set with the SP500 index fund. But I need to choose a bond fund (or a mix of bond funds). Can anyone please make a recommendation? My old 401k had only 2-3 bond fund choices and one was an index so the choice was simple. Here, I have more options like high yield, inflation protected, intermediate term, etc. None appear to be index funds. New 401k is at Fidelity, which I'm also new to. Here are my options:
Inflation Protected - PIMCO REAL RETURN (ER 0.37)
Intermediate Term - PIMCO CORE PLUS BOND (ER 0.37)
High Yield - NB HIGH INC BOND R6 (ER 0.62) NRHIX
Stable Value - INCOME FUND (ER 0.37)
Emerging Markets - FID NEW MARKETS INC (ER 0.86) FNMIX
Is it good to split between inflation protected and intermediate in this case maybe? I really need to know the benefits and pitfalls of each one to make the best choice(s).
Thanks very much in advance for the advice.
EDIT: Edited to include the ticker symbols...at least the ones I could find. For some reason I can't seem to find the others on my available funds list...
Last edited by guitarguy on Mon May 05, 2014 2:20 pm, edited 1 time in total.
- RyeWhiskey
- Posts: 864
- Joined: Thu Jan 12, 2012 9:04 pm
Re: Please help me choose 401k Bond Fund!
Ticker symbols would be helpful but at a cursory glance I'd go with:
Intermediate Term - PIMCO CORE PLUS BOND (ER 0.37)
or
Inflation Protected - PIMCO REAL RETURN (ER 0.37)
or
Stable Value - INCOME FUND (ER 0.37)
If the stable value fund has a guaranteed rate of return (like 3%) I'd probably take that for simplicity. If it's just a money-market fund then I'd go with one of the intermediate funds. If you don't know what the stated purposes of inflation-protected securities are then you should not buy them until you do. Go with the Intermediate Term CORE PLUS BOND fund while you read up on TIPS and then make an informed decision.
Intermediate Term - PIMCO CORE PLUS BOND (ER 0.37)
or
Inflation Protected - PIMCO REAL RETURN (ER 0.37)
or
Stable Value - INCOME FUND (ER 0.37)
If the stable value fund has a guaranteed rate of return (like 3%) I'd probably take that for simplicity. If it's just a money-market fund then I'd go with one of the intermediate funds. If you don't know what the stated purposes of inflation-protected securities are then you should not buy them until you do. Go with the Intermediate Term CORE PLUS BOND fund while you read up on TIPS and then make an informed decision.
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Re: Please help me choose 401k Bond Fund!
guitarguy: I agree with RyeWhiskey above. Those three are some decent funds and there's no need to reach into the riskier and more expensive options with your safe money. Stocks are more than a handful when it comes to risk.
Also because of the 60% stock allocation, I'd use the Core Plus fund now rather than the inflation-protected. At 60/40, equities can take care of the inflation heavy-lifting and nominal bonds are a better way to balance through stock market hiccups.
As for choosing Stable Value or not: read http://www.bogleheads.org/wiki/Stable_value_fund to understand more about what they are. They can be a good option with high enough yields. I'd probably draw the line at 2% and use a regular bond fund if it's below that.
Also because of the 60% stock allocation, I'd use the Core Plus fund now rather than the inflation-protected. At 60/40, equities can take care of the inflation heavy-lifting and nominal bonds are a better way to balance through stock market hiccups.
As for choosing Stable Value or not: read http://www.bogleheads.org/wiki/Stable_value_fund to understand more about what they are. They can be a good option with high enough yields. I'd probably draw the line at 2% and use a regular bond fund if it's below that.
- HardKnocker
- Posts: 2063
- Joined: Mon Oct 06, 2008 11:55 am
- Location: New Jersey USA
Re: Please help me choose 401k Bond Fund!
This would be my choice: Intermediate Term - PIMCO CORE PLUS BOND (ER 0.37)
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett
- Phineas J. Whoopee
- Posts: 9675
- Joined: Sun Dec 18, 2011 5:18 pm
Re: Please help me choose 401k Bond Fund!
I'd agree unless the stable value fund's present return is above or not very much below that fund's SEC yield.HardKnocker wrote:This would be my choice: Intermediate Term - PIMCO CORE PLUS BOND (ER 0.37)
PJW
Re: Please help me choose 401k Bond Fund!
Can't offer advice without knowing what the SVF is paying.
Re: Please help me choose 401k Bond Fund!
Thanks for the advice so far everyone.
The SVF appears to be paying 2.X% over the past years. Is that large enough to just do that? Or, would there be any value (i.e. would it make any sense) in splitting these bond contributions 50/50 between the intermediate fund and the SVF?
Also I should note, my overall asset allocation isn't 60/40 stocks/bonds, but rather new money specifically being added to my 401k was split that way. My overall asset allocation is 80/20. Just wanted to mention that in case it made any difference in the recommendations.
The SVF appears to be paying 2.X% over the past years. Is that large enough to just do that? Or, would there be any value (i.e. would it make any sense) in splitting these bond contributions 50/50 between the intermediate fund and the SVF?
Also I should note, my overall asset allocation isn't 60/40 stocks/bonds, but rather new money specifically being added to my 401k was split that way. My overall asset allocation is 80/20. Just wanted to mention that in case it made any difference in the recommendations.
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- Joined: Fri May 13, 2011 6:27 pm
Re: Please help me choose 401k Bond Fund!
At over 2%, I'd take stable value.At 80% stocks , seems like good fitguitarguy wrote:Thanks for the advice so far everyone.
The SVF appears to be paying 2.X% over the past years. Is that large enough to just do that? Or, would there be any value (i.e. would it make any sense) in splitting these bond contributions 50/50 between the intermediate fund and the SVF?
Also I should note, my overall asset allocation isn't 60/40 stocks/bonds, but rather new money specifically being added to my 401k was split that way. My overall asset allocation is 80/20. Just wanted to mention that in case it made any difference in the recommendations.
John
Re: Please help me choose 401k Bond Fund!
No harm in splitting the contributions between StVF and intermediate term. That's how I do it at my Fidelity 401k.
"..the cavalry ain't comin' kid, you're on your own..."
Re: Please help me choose 401k Bond Fund!
In the current interest rate environment, I am a big fan of the stable value fund. My wife has one in her 401k, and that is where the FI for virtually her entire retirement portfolio resides. Check the current yield (and recheck regularly), and if it is in the 2-3% range or higher, it might be the best option.
Re: Please help me choose 401k Bond Fund!
Well, I looked a little closer at the SVF, and its current yield (year-to-date, updated daily) is actually only 0.86%. The 1, 3, and 5 year marks are all 2.X% which is what I saw the first time I looked at it, and I overlooked the low current yield number.
Since the current yield is so low maybe I'm better off with the intermediate term fund.
EDIT: I also did some reading on TIPS...so at least now I understand what they are and how they work. But I'm not sure if it's advisable to hold them or not. I mean...how are you supposed to predict how inflation will look over the long term? Are TIPS something that most younger-ish investors (I'm 29) like me should generally hold?
Since the current yield is so low maybe I'm better off with the intermediate term fund.
EDIT: I also did some reading on TIPS...so at least now I understand what they are and how they work. But I'm not sure if it's advisable to hold them or not. I mean...how are you supposed to predict how inflation will look over the long term? Are TIPS something that most younger-ish investors (I'm 29) like me should generally hold?
Re: Please help me choose 401k Bond Fund!
Well that answers that. I would avoid the SVF and go intermediate bonds.guitarguy wrote:Well, I looked a little closer at the SVF, and its current yield (year-to-date, updated daily) is actually only 0.86%.
PS is that annualized year-to-date return, or YTD return which when annualized is more like 2%? As you have already seen, details matter.
Re: Please help me choose 401k Bond Fund!
I have a similar Stable Value whose ytd is .86 but stated yield is 2.85. I've always wondered about that. Hoping someone can explain.
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Re: Please help me choose 401k Bond Fund!
Year to date is year to date return.At what month is this .86 reported to be?max12377 wrote:I have a similar Stable Value whose ytd is .86 but stated yield is 2.85. I've always wondered about that. Hoping someone can explain.
John
Re: Please help me choose 401k Bond Fund!
To piggy back on this question, mine has an up-to-date value that says "updated daily". So, that's just the ytd performance of that fund, right?Johm221122 wrote:Year to date is year to date return.At what month is this .86 reported to be?max12377 wrote:I have a similar Stable Value whose ytd is .86 but stated yield is 2.85. I've always wondered about that. Hoping someone can explain.
John
How does the whole annualized thing fit into the equation?
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Re: Please help me choose 401k Bond Fund!
The annualized is what you should make in a yearguitarguy wrote:To piggy back on this question, mine has an up-to-date value that says "updated daily". So, that's just the ytd performance of that fund, right?Johm221122 wrote:Year to date is year to date return.At what month is this .86 reported to be?max12377 wrote:I have a similar Stable Value whose ytd is .86 but stated yield is 2.85. I've always wondered about that. Hoping someone can explain.
John
How does the whole annualized thing fit into the equation?
John
Re: Please help me choose 401k Bond Fund!
So if it's 2.X annually but reading "ytd, updated daily" at 0.8%, is it possibly like it's earned 0.8% so far this year and by the end of the year it might be at 2.X%? Seems strange like that it would be stated like that.Johm221122 wrote:The annualized is what you should make in a yearguitarguy wrote:To piggy back on this question, mine has an up-to-date value that says "updated daily". So, that's just the ytd performance of that fund, right?Johm221122 wrote:Year to date is year to date return.At what month is this .86 reported to be?max12377 wrote:I have a similar Stable Value whose ytd is .86 but stated yield is 2.85. I've always wondered about that. Hoping someone can explain.
John
How does the whole annualized thing fit into the equation?
John
Also, I should note the the performance has gone down over the 1-3-5-10 year numbers from 3.99, to 2.9, to 2.7, to 2.1 for the 1 yr...so I'm wondering if it's just been going down and it's now at 0.8, or if it's expected to be back up at 2 by years end. How do I find this out? If I were to call Fidelity, what specifically do I ask? I want to make sure I find out the right info...
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- Joined: Fri May 13, 2011 6:27 pm
Re: Please help me choose 401k Bond Fund!
Rates have fallen in last 10 years
Fidelity probably couldn't tell you what it will earn
If already .86 % do you think rest of year will be zero
Annualized return
https://www.portfoliomonkey.com/home/glossary
John
Fidelity probably couldn't tell you what it will earn
If already .86 % do you think rest of year will be zero
Annualized return
https://www.portfoliomonkey.com/home/glossary
John
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- Joined: Tue Aug 06, 2013 12:43 pm
Re: Please help me choose 401k Bond Fund!
As the others have said you're looking at the YTD return not annualized rate so your plan documents should explain how the fund works like at mine they set a new rate quarterly so you rarely get a particular rate for the entire year but instead it will be some average of the four rates over the year's time.
Re: Please help me choose 401k Bond Fund!
OK, thanks. I'm just trying to understand how this works.Johm221122 wrote:Rates have fallen in last 10 years
Fidelity probably couldn't tell you what it will earn
If already .86 % do you think rest of year will be zero
Annualized return
https://www.portfoliomonkey.com/home/glossary
John
So as of today, the ytd return is down to 0.64%. Based on the math in that above link, the calculated/expected annualized return would be 1.93%. Calculated with yesterday's rate of 0.86%, the annualized return comes out to 2.6%...quite a difference. Now I'm not into watching this stuff on a daily basis...but are these types of fluctuations normal?
If this ytd return that they're displaying is cumulative, why does it go down? Is it some kind of average?
Thank you very much for helping a newb with this stuff.
- RyeWhiskey
- Posts: 864
- Joined: Thu Jan 12, 2012 9:04 pm
Re: Please help me choose 401k Bond Fund!
There are different ways of displaying yield and return. All we laypeople need to know is: what, generally speaking, can I expect to return on this asset and at what risk?guitarguy wrote:OK, thanks. I'm just trying to understand how this works.Johm221122 wrote:Rates have fallen in last 10 years
Fidelity probably couldn't tell you what it will earn
If already .86 % do you think rest of year will be zero
Annualized return
https://www.portfoliomonkey.com/home/glossary
John
So as of today, the ytd return is down to 0.64%. Based on the math in that above link, the calculated/expected annualized return would be 1.93%. Calculated with yesterday's rate of 0.86%, the annualized return comes out to 2.6%...quite a difference. Now I'm not into watching this stuff on a daily basis...but are these types of fluctuations normal?
If this ytd return that they're displaying is cumulative, why does it go down? Is it some kind of average?
Thank you very much for helping a newb with this stuff.
Generally speaking, your stable value fund will return somewhere between 2% and 3%. This year it may be 1.96%. Next year it could be 3%. Who knows. The point is that the stable value fund is not sensitive to interest rate risk like the bond fund. Generally speaking, the bond fund could get you 4% but if interest rates rise 1% and it has a 6 year duration it would lose 2% rather than gain 4%. So the bond fund has more risk of loss than the stable value fund, but a higher possible return as well.
These general outlines are what ought be considered when making simple asset allocation decisions. The specifics will fill themselves in over time and you can reassess at a later point if you feel it necessary.
This post was brought to you by Vanguard Total World Stock Index (VTWSX/VT).
Re: Please help me choose 401k Bond Fund!
Thanks for the layman breakdown.RyeWhiskey wrote:There are different ways of displaying yield and return. All we laypeople need to know is: what, generally speaking, can I expect to return on this asset and at what risk?guitarguy wrote:OK, thanks. I'm just trying to understand how this works.Johm221122 wrote:Rates have fallen in last 10 years
Fidelity probably couldn't tell you what it will earn
If already .86 % do you think rest of year will be zero
Annualized return
https://www.portfoliomonkey.com/home/glossary
John
So as of today, the ytd return is down to 0.64%. Based on the math in that above link, the calculated/expected annualized return would be 1.93%. Calculated with yesterday's rate of 0.86%, the annualized return comes out to 2.6%...quite a difference. Now I'm not into watching this stuff on a daily basis...but are these types of fluctuations normal?
If this ytd return that they're displaying is cumulative, why does it go down? Is it some kind of average?
Thank you very much for helping a newb with this stuff.
Generally speaking, your stable value fund will return somewhere between 2% and 3%. This year it may be 1.96%. Next year it could be 3%. Who knows. The point is that the stable value fund is not sensitive to interest rate risk like the bond fund. Generally speaking, the bond fund could get you 4% but if interest rates rise 1% and it has a 6 year duration it would lose 2% rather than gain 4%. So the bond fund has more risk of loss than the stable value fund, but a higher possible return as well.
These general outlines are what ought be considered when making simple asset allocation decisions. The specifics will fill themselves in over time and you can reassess at a later point if you feel it necessary.
After reading a bit more about SVFs and having it sync in a bit more with this explanation...I think I'm most comfortable going with either this SVF or possibly a split between that and the intermediate term fund. I may just stick with the SVF for simplicity though, unless there is a good reason to split it up. Any thoughts?
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Re: Please help me choose 401k Bond Fund!
Nobody knows what will be best.50/50 bonds and stable value is a good fit, I use mostly use stable value because my cheapest bond fund is almost 1.5%..The question you have to answer is do you want the Pimco fund?
John
John
Re: Please help me choose 401k Bond Fund!
Yeah...I answered that myself already actually.Johm221122 wrote:Nobody knows what will be best.50/50 bonds and stable value is a good fit, I use mostly use stable value because my cheapest bond fund is almost 1.5%..The question you have to answer is do you want the Pimco fund?
John
I decided on "diversifying" the bond funds and went with the 50/50 split between that SVF and the Pimco. I'm thinking it's a good strategy to mix it up there since the ER is the same.